Newbie here, should I invest in state or out?

15 Replies

I am an aspiring real estate investor living in Idaho Falls, ID trying to make my first deal. My original inclination was to try to house hack in my area however, I have yet to really find anything on the market that would give me a positive cash flow or even break even, although some have come close. I have started thinking about investing out of state perhaps with the help of a consulting firm like Rent to Retirement. It seems like it could be a good way for me to get started. But my question is this, is it better to have more cash flow in a housing market that appreciates steadily but slower, or invest locally in Idaho Falls, which is in the top 10% nationally for real estate appreciation according to NeighborhoodScout, but have a negative monthly cash flow? Again, I'm really new at this and just trying to learn as much as I can. I would appreciate pros and cons as well as any advice.

@Mariah Porter my personal opinion would be to invest locally for your first if possible. If the numbers don’t make sense then research and build a team where you want to invest. I wouldn’t invest in a negative cash flow situation though

@Mariah Porter -  I think the bigger question is what are you looking for from your investment?  In other words - there are plenty of markets in the U.S. right now that don't provide a positive cash flow, but there are investors investing there every day - some markets in CA have properties being outbid by over 100k!  Then you have some investors that focus strictly on cash flowing properties - maybe to cover expenses, maybe to replace income - everybody has their reason and they all work.  There are many markets out there - and there are some markets that offer appreciation AND cash flow as well, and I don't mean nominal appreciation.  We are doing new builds in FL right now that cash flow day one, have the opportunity to have equity (and yes more than your downpayment) day one, as well as being in a rapidly growing market.  In a recent article, SW Florida was named as the second largest in home development in the nation!  (https://www.winknews.com/2021/...).  All I am saying is that - there is a lot out there to explore - start with what your goal in investing is - then start working to analyze and develop in markets that will allow you to start achieving this.  Feel free to message me if you have any questions!

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@Mariah Porter I am in your market. We work with a lot of investors to purchase properties here. But the main determination is what is your current need and what is your goal. And much of that will also depend on your current financial position. In particular your debt to income. The reason is that if you have a negative cash flow property, and that single property pushes your dti far above what any bank is willing to work with, you will not be able to get another loan for another property. I think ideally, if you can do a house hack, even if it doesn't come out positive, you will still be ahead. If you were to buy a house to live in or rent a place, you will likely be spending between $800-1300/mo. If you can find a small multi-family to house hack, you may either break even or maybe you will still have to may a few hundred per month. But which is better? Paying a few hundred per month or $1000/mo? You will be saving more income, and it will help your dti since you have most of your housing cost covered, AND most likely by the time you move out and rent your unit, the property as a whole will be cash flow positive. I am certain that we can find something local that can work, it may depend on if you have specific criteria you need for bedrooms and location.

Generally though, if you don't have a strong financial position, most people opt for cash flow first. This can also be tricky. Sometimes the high cash flow areas are also places with low incomes and not a strong tenant base which can create other problems and costs and in the end still lose money and no appreciation. At the same time investing purely for appreciation is risky and speculative since you never know what the market will do. Personally, my local investments have done far better than my out of state properties for both cash flow and appreciation. Also, when analyzing a property, even if it breaks even now, or maybe slightly negative, you can expect rents to increase over time. So don't just look at how it is now, consider how it will be 5 years from now. There are several I passed on a few years ago that I wish I had bought because now values and rents have appreciated a lot and those properties that did not cash flow back then, would be now and have doubled in value.

Alternatively, you can also look to partner with others. I have done several partnerships and done well with that to invest in deals I could not have otherwise. Happy to meet up sometime if you would like to discuss more.

@Mariah Porter way to make the first post and such a great one! House Hacking is a great way to get started and also an easy way out. Say you found a duplex, a house with a detached unit, or a roommate. You get it rent out some of the space or units and see if you like it or not. If you don't move out sell the house and chalk it up to gave it a try. However I think if you go from paying rent or paying your entire mortgage to getting cash coming in to subsidized you monthly payment you will be hooked and want to do more. Now if you already have a house and just wanting passive income with rentals and hiring a PM, in my opinion your location doesn't matter as you have someone else managing it so go where you want to. 

However I have to push back on not finding any properties that could be used as house hacking. Try hitting up a agent and let them know what you are looking for and I bet they could have you a property that would work.

Originally posted by @Eric Winkler :

@Mariah Porter - ...  All I am saying is that - there is a lot out there to explore - start with what your goal in investing is - then start working to analyze and develop in markets that will allow you to start achieving this.  Feel free to message me if you have any questions!

Thank you for your kind and informative response. I will keep that in mind.

Originally posted by @Don Spafford :

@Mariah Porter I am in your market. We work with a lot of investors to purchase properties here. But the main determination is what is your current need and what is your goal. And much of that will also depend on your current financial position. In particular your debt to income. The reason is that if you have a negative cash flow property, and that single property pushes your dti far above what any bank is willing to work with, you will not be able to get another loan for another property. I think ideally, if you can do a house hack, even if it doesn't come out positive, you will still be ahead. If you were to buy a house to live in or rent a place, you will likely be spending between $800-1300/mo. If you can find a small multi-family to house hack, you may either break even or maybe you will still have to may a few hundred per month. But which is better? Paying a few hundred per month or $1000/mo? You will be saving more income, and it will help your dti since you have most of your housing cost covered, AND most likely by the time you move out and rent your unit, the property as a whole will be cash flow positive. I am certain that we can find something local that can work, it may depend on if you have specific criteria you need for bedrooms and location.

Generally though, if you don't have a strong financial position, most people opt for cash flow first. This can also be tricky. Sometimes the high cash flow areas are also places with low incomes and not a strong tenant base which can create other problems and costs and in the end still lose money and no appreciation. At the same time investing purely for appreciation is risky and speculative since you never know what the market will do. Personally, my local investments have done far better than my out of state properties for both cash flow and appreciation. Also, when analyzing a property, even if it breaks even now, or maybe slightly negative, you can expect rents to increase over time. So don't just look at how it is now, consider how it will be 5 years from now. There are several I passed on a few years ago that I wish I had bought because now values and rents have appreciated a lot and those properties that did not cash flow back then, would be now and have doubled in value.

Alternatively, you can also look to partner with others. I have done several partnerships and done well with that to invest in deals I could not have otherwise. Happy to meet up sometime if you would like to discuss more.

I really appreciate all of the great input. I would love to meet up sometime and chat.

Originally posted by @Chris Davidson :

@Mariah Porter way to make the first post and such a great one! House Hacking is a great way to get started and also an easy way out. Say you found a duplex, a house with a detached unit, or a roommate. You get it rent out some of the space or units and see if you like it or not. If you don't move out sell the house and chalk it up to gave it a try. However I think if you go from paying rent or paying your entire mortgage to getting cash coming in to subsidized you monthly payment you will be hooked and want to do more. Now if you already have a house and just wanting passive income with rentals and hiring a PM, in my opinion your location doesn't matter as you have someone else managing it so go where you want to. 

However I have to push back on not finding any properties that could be used as house hacking. Try hitting up a agent and let them know what you are looking for and I bet they could have you a property that would work.

Thanks so much for your kind response. You have given me a few more things to think about.

Hi Mariah. Finding a place to house hack "traditionally" that cash flows is tough these days. It can still be very worth it considering the extreme rent reduction, appreciation, loan paydown, and tax benefits. These days I am seeing better luck with house hacking utilizing rent by the room and/or airbnb. Single family homes tend to have cheaper price to rent ratios than multifamily. If you can find a SFH with ADU/MIL/separate living areas and kitchens, that's a huge win. That's what's working in this expensive Seattle/Tacoma market. Hope this helps, good luck Mariah!

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@Mariah Porter in an expensive market, creativity comes into play. Connect with local house hackers or investors and see if anyone in the local market is cash flowing. In the denver market, it's not uncommon for house hackers to airbnb a portion of their home, and long-term rent another portion of their home. Keep exploring options and stay excited about house hacking!